Supply chain management (SCM) is one of the foundations for most businesses, especially those offering products. It doesn’t matter whether they are manufacturers or retailers. The system itself, though, can be complicated. These organizations may eventually have to seek help from recruiters of supply chain executives. To better understand the need, get deeper into the concept of SCM.
What Is Supply Chain Management?
In general, supply chain refers to a series of processes of moving the products from the business to the consumer side. Here’s a simplistic way to explain it. Company A, a retailer of trendy clothing, buys tops and skirts from supplier A. To do it, the business might have to coordinate with the vendor for the manufacturing and perhaps a logistics team to deliver the goods to the store.
In reality, the supply chain is one of the most comprehensive and often confusing and difficult-to-manage parts of the business. It’s because it involves many elements such as people, activities, and resources. This is where SCM steps in. SCM refers to the management or supervision of the flow of products across different points of production and distribution.
What Are the Goals of SCM?
One of the primary purposes of SCM is to reduce operating costs. These refer to production-related expenses such as the cost of goods sold, wages, research and development, and overhead costs.
The need to lower such costs is easy to understand. Simple math suggests when one decreases them, they can boost the gross profit. Doing it excessively, though, can be detrimental as well, especially in the long term.
Take, for example, reducing capitalization by skipping buying more advanced equipment. It might not only increase maintenance as the machines experience wear, but the company may miss the opportunity of improving its efficiency and productivity. Both can potentially decrease profits in the future. With SCM, companies can make sounder decisions even on regular ones such as cost reduction. Other known benefits of SCM are the following:
1. Agility – This can refer to how fast the company can adjust to changing situations or factors. These can include demand, product trends, innovation, and competition. A right SCM is scalable, which means it’s easy for the business to tweak some processes or resources to match the industry changes.
2. Efficiency – SCM can boost productivity, true, but this need can be higher for businesses in highly competitive markets such as construction materials. Usually, in these sectors where products are basically the same, the unique value proposition becomes price.
By making the production and delivery more efficient, businesses might be able to reduce production costs and, in turn, pass such benefits to the consumers. It then becomes a win-win situation as the company may look forward to loyalty without sacrificing their gross profit.
3. Improved Customer Service – Partly thanks to e-commerce, which makes buying almost anyone online fast, consumers want quick delivery services as well. In fact, a survey by AlixPartners revealed that the acceptable shipping period decreased from 5.5 in 2012 to 4.5 days in 2018. It doesn’t help the likes of Amazon now offer same-day or next-day delivery.
A well-thought-out SCM, therefore, isn’t only about efficiency but also excellent customer service. All enterprises, whether big or small, are part of a complicated ecosystem. SCM can help simplify it, making it a foundation for any company.